Concerns over the wider disruption of supplies from OPEC countries could fuel further oil price increases, but at the same time improve realisations of oil companies in India which are reeling under under-recoveries
Soaring prices of crude oil in the international markets due to the political unrest in the Middle East and North Africa (MENA), will improve the realisations of private oil exploration and production companies in India, according to a research report by CRISIL.
"The margins of refining companies will also improve and the political unrest in the MENA region which has already been rocketing prices of crude oil, would fuel further price increase," the rating agency says. The report states that average crude oil (Dated Brent) prices are expected to increase more than 15% to over $102 per barrel in the fourth quarter of 2010-11 as against the previous quarter.
"In a year when we expect world dependence on OPEC oil supply to increase, concerns over a wider disruption of supplies from OPEC countries will fuel further oil price increases," said Sridhar Chandrasekhar, head, CRISIL Research. (OPEC, or the Organization of Petroleum Exporting Countries, is an intergovernmental body of 12 oil-producing countries which together account for more than two-third of the world's reserves. Most of these countries are located in the MENA region.)
Following the Union Budget presented in Parliament earlier this week, state-run oil companies from India are proposing to raise petrol prices by up to Rs4 a litre to offset rising crude oil costs, arguing that the Budget had ignored their demand for a cut on duties on fuel. The government freed pricing of petrol in June last year.
India imports 80% of its energy requirement and the average price at which India imports crude oil is about $110 a barrel. Oil companies say they are losing Rs10.70 a litre on diesel, Rs21.60 a litre on kerosene and Rs356.07 on a cooking gas cylinder.
Kisan Ratilal Choksey Shares and Securities said, "We believe it is a loss for the oil companies as no duties were cut on the fuel. Simultaneously, the subsidy amount has been reduced to Rs23,640 crore from Rs38,386 crore, a decline of 13%. With no relief from the Budget, the oil companies have no choice but to raise the petrol price which was deregulated last year. We believe this would help the companies to compensate their revenue loss."
Private and government-owned refining companies too will benefit. CRISIL, an affiliate of the international ratings and financial services company Standard & Poor's, expects gross refining margins to rise from $6.8 per barrel in the third quarter of 2010-11 to $8-9 per barrel in the fourth quarter.
On 2nd March, crude oil prices touched $116 per barrel, the highest level since the middle of 2008, and prices are expected to move northward on fears that the violence could spread to neighbouring countries such as Saudi Arabia and Iran.
Before the dust had settled in Egypt, the Libyan crisis erupted, leading many oil companies to suspend their operations there. Libya accounts for close to 2% of the global oil output. Last week, Nomura International (HK) said, "If Libya and Algeria were to halt oil production together, prices could peak above $220 per barrel and OPEC's spare capacity will be reduced to 2.1 million barrels per day, similar to levels seen during the Kuwait-Iraq conflict and when prices hit $147 per barrel in 2008."
Crude oil prices, which were already inching up over the past two year on the back of improving fundamentals, started soaring, as political turmoil erupted in Tunisia in December. As the uncertainty over oil supplies disturbed market sentiment, the unrest in Egypt pushed oil prices to over $100 per barrel.
However, CRISIL feels that "government-owned oil exploration and marketing companies will not benefit as much, as they will have to shoulder an increase in subsidy burden on account of rising oil prices."
The subsidy burden for oil marketing companies would nearly double on the quarter to Rs300 billion in January-March from Rs155 billion in the December quarter. The government compensates losses of oil marketing companies from the sale of petroleum fuels at lower than the cost price. The total under-recoveries for this fiscal ending March are expected to cross Rs750 billion.
Babubhai Vaghela, former senior manager at IOC, says general statutory rule allowing the executive to approve mergers of government entities goes against fundamental principle of separation of powers
The proposed merger of Maharashtra Elektrosmelt (MEL) with Steel Authority of India (SAIL) is illegal and must be cancelled, according to renowned RTI activist Babubhai Vaghela.
Mr Vaghela, who was senior manager of Indian Oil Corporation (IOC) in Ahmedabad, has asked the Union government to cancel the merger, citing several judicial precedents. He has alleged that the general statutory rule (GSR) 238, of 2nd February 1978, that allows the executive to approve mergers, goes against the principle of the separation of powers.
On a similar issue on Tuesday, the Madras High Court upheld the principle of separation of power and granted an interim stay on a provision in the National Green Tribunal Act for appointment of some officials. Ruling on a PIL, a division bench said that allowing executives to play a judicial role exceeding their powers, would be contrary to the spirit of the Constitution, was against the principle of separation of powers and would nullify the purpose of fair administration of justice.
The general statutory rule 238 was issued by the government of India about a year ago in the case of the merger of IOC subsidiary Bongaigaon Refinery & Petrochemicals (BRPL) with its parent company. The rule empowers the Ministry of Corporate Affairs (MCA) to hear and approve mergers of government entities under sections 391-394 of the Companies Act 1956.
The case of the merger of Maharashtra Elektrosmelt with SAIL is to be heard before the Ministry of Corporate Affairs on 8th March.
Mr Vaghela said, "GSR 238 is against the constitutional scheme of separation of powers and has been legally challenged. Even a senior advocate of M/s Amarchand Mangaldas, representing IOC and BRPL was convinced about it, during the hearing of the IOC-BRPL merger petition by Jitesh Khosla, then joint secretary of MCA." Mr Vaghela, who was an objector in the hearing, had requested Mr Khosla to refer the jurisdiction issue for legal scrutiny.
Mr Vaghela also claims that SAIL did not send any notification to its shareholders about the annual general meeting where the decision on the merger was taken. Thus, the decision taken should be declared null and void. He has also requested the Vigilance Commission to investigate why shareholders do not receive requisite notifications. Many PSUs, including Oil and Natural Gas Corporation, he says, do not communicate matters to their shareholders.
Replying to his objection, Anirudh Das, advocate representing SAIL, said that since Mr Vaghela neither attended the meeting, nor voted on the proposal, his objection to the decision was not valid. Mr Das has also claimed that the required communication was sent by Speed Post and that the company has the receipt of the delivery by post.
Mr Vaghela, however, dismissed the argument by the advocate saying, "I did not receive the communication to attend the shareholders meeting, said to have been called by the MCA and, therefore, the question of my attending or not attending, and voting or not voting, does not arise. Papers said to have been despatched on 22nd February 2011 have, till the time of writing (this message), are not received. Knowing the extent of corruption prevalent in the government, tall claims of transferor or transferee company; Ministry of Steel or PMO cannot be taken at face value."
The Maharashtra Elektrosmelt share last traded on 17th February 2011 at a price of Rs298, marginally up from its 52-week low of Rs270 a couple of days earlier. SAIL closed 0.82% lower at Rs157.40 on the Bombay Stock Exchange today, while the benchmark Sensex closed 0.23% up at 18,489 points after a volatile trading session.
India is recognised globally for its wealth of wisdom in alternative therapies like ayurveda and yoga. But tourism operators complain that not enough is being done to promote such wellness facilities
In the late 60s, when The Beatles came to India, they visited Maharishi Mahesh Yogi's ashram in Rishikesh, the pilgrim town in the foothills of the Himalayas. This spiritual quest by the fab four inspired many of their songs in the popular albums like 'Abbey Road' and 'White Album'.
Such a trip by a foreigner today would be labelled a 'wellness tour'. An increasing number of foreigners are visiting the country these days in search of alternative therapies, while enjoying a holiday at peaceful locales, opening up vast revenue-earning potential for the tourism industry.
Yes, India is recognised globally for its wealth of wisdom in areas of ayurveda and yoga, the principal alternative therapies sought today. And these are being promoted along with naturopathy and spiritual philosophy which is so integral to the Indian way of life. However, according to industry representatives not enough is being done to promote and market wellness tourism to exploit the potential in the country.
Zelam Chaubal, director, Kesari Tours, says, "Wellness tourism is and has been developed in India since a long time, but it has not been marketed and taken advantage off. When it comes to marketing and promoting our heritage or whatever good we have with us we are weak in it. The most important factor is infrastructure, and we lack in it."
Increasing work pressure and a stressful lifestyle are leading more and more travellers, who are going on a holiday, to seek facilities like spas, yoga, ayurveda and fitness centres. "India is becoming a medical and wellness hub as medical treatment here is available at much lower costs than in the Western world. People have started travelling to India for medical and wellness treatment. So there are properties that have been developed in that way too." Mrs Chaubal said. "Usually Indians enjoy this for a week or so, but inbound tourists come here and spend an average 15 days to month(s)."
Manoj Gurshahani, director of travel, Travelmartin.com, explained with an example: "A foreigner will come to, say for instance in Jaipur, for dental surgery, which hardly takes a day's time. The rest of the time he/she is relaxing and shopping. Such numbers of travellers are increasing and it needs to be promoted well."
Among various destinations in India, there are a few places that are preferred for the facilities they have developed. Like Kerala with its spas and backwaters, and Rishikesh, a hub of spirituality. "Kerala is a very good example in India where wellness tourism is developed, and Indians as well as foreigners are availing of the facilities here on a large scale. Atmasantulan village at Karla, near Lonavala in Maharashtra, is another example. Ananda spa at Rishikesh is world renowned facility that promotes wellness tourism," says Mrs Chaubal.
Recently, inaugurating the national workshop on promotion of wellness tourism, Union minister for tourism Subodh Kant Sahay, announced guidelines for wellness centres. "These guidelines have been developed by the National Accreditation Board for Hospital & Healthcare Providers (NABH) and approved by the Department of AYUSH, Ministry of Health & Family Welfare. The wellness centres accredited as per these guidelines will give a level of confidence to the tourist and those availing of the wellness services…" an official statement said.
Minister of state for tourism Sultan Ahmed was quoted in the statement as saying, "It is essential for destinations to create unique travel experiences on an emotional, physical, intellectual and even spiritual level. Wellness has been the USP of Indian tourism. And that wellness tourism is now creating major opportunities for destinations, resorts, spas, hotels and other smaller businesses throughout the tourism industry."
Campaigns like "Incredible! India" are promoting the tourism industry as a whole, but more such campaigns are needed to specifically promote wellness tourism. "Wellness tourism can be a major source of revenue for the tourism industry if promoted properly. Marketing is a weak point, more promotional activities like 'Incredible! India', which is one of the successful promotional campaigns, are required," Mr Gurshahani said.